Osaka Exchange, Inc. (OSE) listed “3-Month TONA Futures” on 29th May 2023. 3-Month TONA Futures are cash-settled futures contracts that use Uncollateralized Overnight Call Rate as underlying assets and are expected to contribute to the improvement of TONA derivatives trading in Japan.
As stated in the press release issued by OSE and Ueda Tradition Securities Ltd. on 29th May, OSE and we will collaborate to revitalize trading of 3-Month TONA Futures contracts.
On 8th May 2023, we completed registration as a Type II Financial Instruments Business Operator and have established a system to mediate 3-Month TONA Futures contracts.
We will provide further trading opportunities to market participants by using Off-Market Trading (J-NET Trading) in OSE to mediate 3-Month TONA Futures listed on OSE. Going forward, we will actively cooperate to promote trading in listed derivatives products, including short-term interest rates.
In this document, we will introduce the off-market trading “Pack” & “Bundle” scheme via IDB in order to make effective use of TONA Futures with 20 contract months.
Osaka Exchange’s 3-Month TONA Futures, which were listed on 29th May 2023, are scheduled to introduce a cross-margining with interest rate swaps to be cleared by JSCC in the 1Q of 2024.
By using 3-Month TONA Futures to form Pack & Bundles, it is expected to improve margin efficiency compared to swap trading.
A "Pack" is constructed through a 1year strip trading of 3-MonthTONA Futures contracts, involving trading four consecutive contract months together.
For instance, in the case of a "White June Pack" purchase, it would involve buying an equal quantity of 3-Month TONA Futures contracts from the most recent June contract month and the following 3 consecutive contract months. In OSE, it is possible to conduct Pack trading with up to 17 contracts.
| 1year | White | 1st 4 Quarterlies |
| 2years | Red | 2nd 8 Quarterlies |
| 3years | Green | 3rd 12 Quarterlies |
| 4years | Blue | 4th 16 Quarterlies |
| 5years | Gold | 5th 20 Quarterlies |
A "Bundle" is a trading strategy where a series of consecutive 3-Month TONA Futures contract months are simultaneously bought or sold. In our company, Bundles ranging from the shortest 3-month contract to 2 - 5 years are available for trading.
Essentially, all combinations of listed 3-Month TONA Futures contracts can be traded as Bundles.
Pack and Bundle are basically quoted at a fixed rate. However, at the same time as the fixed rate, it is necessary to agree with the counterparty the average net change of how many basis points the rate has changed from the previous day‘s settlement price.
Pack Example
1YR QQ 2024 March Pack (5th IMM ～8th IMM 4 contracts )
(Assuming execution on 15th June 2023)
Agreed Fixed Rate @0.09175%
300 contracts per contract month (1,200 in total)
* Equivalent to the notional amount of a swap of 30 billion yen
| Code | Bloomberg: JOAA, Refinitiv: JTOA |
|---|---|
| Underlying | Financial index calculated by subtracting the compounded Tokyo Over Night Average rate (TONA) interest (R*) from 100 *R = annualized interest rate derived from daily cumulative compounding of TONA (final results) for each business day during the Reference Period |
| Trading Hours (on-screen trading) (auction trading) |
|
| Contract Unit | JPY 250,000 x IMM index (JPY 25,000,000 (=JPY 100,000,000 x 0.25 years) is 100 points of IMM index) |
| Contract Months | 20 months in the March quarterly cycle (March, June, September and December) |
| Tick Size | 0.0025 pt. (0.0001pt for strategy trades) |
| Price Limits | 0.25 pt. (1st Expansion: 0.5pt., 2nd Expansion: 0.75pt.) |
| J-NET Trading (off-screen/action trading) | Available (Tick size: 0.0001pt, price limits: 0.5% of the base price for the daily price limits)
|
| Immediately Executable Price Range | 0.025 pt. (Opening Auction: 0.075 pt., Closing Auction: 0.05 pt.) |
| Strategy Trading | Available for a combination of 2 of the nearest 6 contract months (The tick size is 0.0001 pt.) |
| Last Trading Day | Business day prior to the 3rd Wednesday of the three months after each contract month |
| Settlement Method | Cash settled (T+1) |
| Final Settlement Price | The annualized interest rate (expressed as a percentage) calculated by multiplying the interest rate calculated by daily cumulative compounding of TONA (final results) for each business day during the Reference Period by "365 divided by the actual number of days during the Reference Period“, rounded to the four decimal place, and subtracted from 100. |
| Final Settlement Day | The business day following the day on which the final settlement price is determined |
| Holiday Trading | Not eligible |
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